A credit score is a number that ranges from 300 to 900 and indicates a person’s creditworthiness. A borrower with a higher credit score is considered less risky and more financially responsible. Bad credit reflects a borrower’s inability to make their payments on time. If you have a low credit score, raising it might take some time and effort. One way to improve your credit score is to apply for a personal loan.
A personal loan is unsecured credit that you can borrow from a bank or financial institution to cover various expenses, such as weddings, medical emergencies, international travel, and education among others. Your credit score is one of the critical determinants of the loan terms, including the amount, repayment tenure, and interest rate. Here’s a comprehensive look at some of the crucial factors you should consider when taking out a personal loan to improve your credit score.
Decide The Loan Amount Carefully
It’s crucial to take out a personal loan only for the precise amount you require. Request an amount you will quickly be able to repay with predetermined installments. Applying for a loan amount beyond your repayment capacity could result in rejection and lower your credit score.
Avoid Applying to Multiple Lenders
Would you like to use a personal loan to consolidate your debts? Choose a bank that offers a loan with favorable terms that will work within your budget. Applying to multiple lenders for a loan might work against you because every rejection will lower your credit score and overall likelihood of obtaining a loan.
Maintain Payment History
Skipping an EMI or making a late payment is perceived as a sign of stress in the borrower’s credit profile. Delayed payments could drop your credit score and stay on your credit report for a long time. Regularly paying your EMIs will strengthen your payment history, which will help raise your credit score.
Avoid Applying for Other Loans
As you begin making regular loan payments, your credit score will improve, making you eligible for various other loans. Avoid applying for additional loans till you have fully repaid your personal loan. Lenders run credit checks when borrowers apply for loans. If you are already paying for too many loans, credit bureaus may label you as credit-hungry and reject your application.
Avoid Pre-Closure of Your Loan
Many borrowers opt for loan pre-closure to relieve themselves of their debt burden, saving money on the interest they owe to the borrower. However, repaying the loan on time – rather than pre-closure of the loan – will help you build a positive credit history, improving your eligibility for future loans.
Rebuilding your credit history should be your top priority. Taking out a personal loan and following the above-mentioned tips will definitely help you in this regard. When you apply for personal loan to build credit history, do not forget to compare the loan terms and benefits offered by various lenders to make sure you get the best deal.